---
title: "Allianz: The internal divisions within the Federal Reserve are severe, and the likelihood of a 25 basis point rate cut next week remains high"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/268723936.md"
description: "Michael Krautzberger of Allianz Global Investors believes that there are serious divisions within the Federal Reserve, but the likelihood of a 25 basis point rate cut next week remains high. The market's expectation for a rate cut in December is close to 90%, and failing to cut rates would trigger market volatility. The Federal Reserve is expected to implement a total of 50 basis points of preventive rate cuts, with the target rate range dropping to 3.25-3.5% by mid-2026. The updated economic forecasts from officials at the meeting are worth noting, as they may reflect similar divisions"
datetime: "2025-12-05T08:08:06.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/268723936.md)
  - [en](https://longbridge.com/en/news/268723936.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/268723936.md)
---

> Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/268723936.md) | [繁體中文](https://longbridge.com/zh-HK/news/268723936.md)


# Allianz: The internal divisions within the Federal Reserve are severe, and the likelihood of a 25 basis point rate cut next week remains high

According to the Zhitong Finance APP, the Federal Reserve will announce its interest rate decision next week. Michael Krautzberger, Chief Investment Officer of Allianz Global Investors Public Market, stated that the outcome is uncertain due to serious internal divisions within the Federal Reserve, with expectations of a 25 basis point rate cut, but the voting results may show differing positions. Although the outlook is unclear, based on the Federal Reserve's recent statements, macro data, and market pricing, the likelihood of a 25 basis point rate cut remains relatively high. **Currently, the market's expectation probability for a rate cut in December is close to 90%. If they choose to remain unchanged at that time, it would be a significant surprise, potentially triggering market volatility and even causing a short-term correction in asset prices.**

The Beige Book indicates a slowdown in labor demand, and consumer performance is also mixed. Looking ahead, under the basic scenario assumption that the economy does not fall into recession, Michael Krautzberger maintains his forecast: the Federal Reserve will implement an additional total of 50 basis points of "preventive" rate cuts, bringing the federal funds target rate range down to 3.25-3.5% by mid-2026. While this round of moderate easing may help support economic growth and mitigate downside risks, it still falls short of the market's expectation for a terminal rate below 3%.

Michael Krautzberger believes that the updated economic forecasts from the Fed officials during this meeting are also worth noting. The September forecasts showed conflicting signals, indicating that local GDP is close to potential levels, the unemployment rate is gradually declining, and inflation is returning to target, yet a significant rate cut is still anticipated. At that time, the dot plot displayed a high degree of disagreement among officials, with a gap of 125 to 150 basis points. The December forecasts may reflect a similar pattern, with slight upward adjustments to GDP expectations for 2025 to 2026, while unemployment and inflation forecasts remain largely unchanged.

He stated that from a market perspective, if a "hawkish rate cut" is adopted this time, it could maintain the current tone of the "preventive rate cut cycle" and provide support for risk assets. However, the initial positive market reaction may be dampened by more cautious remarks from Powell after the meeting, with expectations that Powell will emphasize the internal disagreements within the committee and that the space for further easing is narrowing, as rates are already close to neutral levels. Nevertheless, the U.S. Treasury market may still gain some support from rate cuts, but considering that the 10-year yield is around 4%, the room for further significant downward adjustments may be limited. **The recent end of quantitative tightening by the Federal Reserve has provided some support for U.S. Treasuries, but to drive yields significantly lower, there may still need to be clear signs of a notable weakening in economic activity or a rapid decline in inflation.**

## Related News & Research

- [US Treasury yield extend fall, 10-year yield last down 2.8 bps at 4.293%; two-year yield slips 1.7 bps at 3.786%](https://longbridge.com/en/news/281544605.md)
- [Buffett says he would care about inflation and the stability of banks if he were at the Fed](https://longbridge.com/en/news/281187041.md)
- [3 Monthly Dividend Stocks With High Yields](https://longbridge.com/en/news/281076989.md)
- [What Warren Buffett gets wrong about the Fed’s inflation target](https://longbridge.com/en/news/281226260.md)
- [Bank of Iwate Unveils Inflation-Era Medium-Term Plan With Higher Profit and ROE Targets](https://longbridge.com/en/news/280958985.md)